IFRS - What's Nsew for 2010

8/11/2019 IFRS - What's Nsew for 2010

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IFRSWhat’s New For 2010?

Starter Kits & InnovationsEnterprise Performance ManagementLine of Business Corporate FunctionsSeptember 2010



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Agenda

1 Which new IFRS shall be applied in 2010?

2. IFRS for SMEs

OverviewScope and applicabilityComparison with full IFRS

3. IFRS 91 st step of a 3-part project to replace IAS 39Main changes introduced by IFRS 9Effective date and transitional requirements

4. Which impacts on the starter kits for IFRS?IFRS for SMEs

IFRS 9




Which new IFRS shall be applied in 2010?

In 2009, the IASB published few new or revised standards but some of them are key:

IFRS for SMEs (July 2009)

A stand-alone standard for Small and Medium ‐sized Entities

The culmination of a 6-year project – Deliberations began in July 2003

– Discussion paper published in June 2004

– Exposure draft published in February 2007 – Field ‐testing of the ED with the participation of 116 small companies in 20 countries (June 2007)

– Final standard issued in July 2009

IFRS 9 (November 2009): 1 st step of a 3-part project to replace IAS 39 (Financial Instruments)

And, for the record, most companies will apply revised IFRS 3 and IAS 27 (BusinessCombinations II) for the first time in 2010

These standards must be applied for annual periods beginning on or after 1 July 2009 (which means2010 annual accounts for companies using a calendar year)

No further development in this document as a comprehensive analysis has already been published forthe SAP BusinessObjects Financial Consolidation, starter kit for IFRS update in 2009




Agenda

1. Which new IFRS shall be applied in 2010?

2 IFRS for SMEs


3. IFRS 91 st step of a 3-part project to replace IAS 39Main changes introduced by IFRS 9Effective date and transitional requirements


IFRS 9




IFRS for SMEsOverview

A self-contained standard of 230 pages (full IFRS: ~ 2,800,FASB’S accounting standards codification: ~17,000) organizedtopically into 35 sections and delivered with:

basis for conclusions

implementation guidance consisting of illustrative financialstatements and a presentation and disclosure checklist

training (under development, 21 out of 35 modules are currently available)

Built on full IFRS foundations but with many recognitionand measurement simplifications

No requirement to ever look to the full IFRSexcept for those companies that would apply IAS 39 instead ofsections 11&12 of this standard

A stable platformthe IASB plans to update the SME standard once every threeyears by considering changes to full IFRS in the intervening yearsand issuing an omnibus amendment to IFRS for SMEs with thechanges the Board believes should be made

A dedicated group (SME Implementation Group) to supportthe international adoption of the IFRS for SMEs and monitorits implementation




IFRS for SMEsScope and applicability

What are SME?In section 1 of the standard, SME are defined as entities that:

(a) do not have public accountability, and

(b) publish general purpose financial statements for externalusers.

Listed companies and financial institutions have publicaccountability and cannot therefore use the IFRS for SMEs

The IASB deliberately excluded size as one of the criteriaconsidering that each local jurisdiction would decide whichentities can use this standard

Effective dateThe standard does not contain an effective date; it will takeeffect from a date determined in each jurisdiction if applicable

Which companies can apply IFRS for SMEs in 2010?US: immediately available to private companies

European Union: no

Many emerging countries (e.g. Brazil) have already authorizedsome or all companies to use this standard




IFRS for SMEsComparison with full IFRS - summary

Topics not relevant for small companies are omittedEarnings per shareInterim financial reportingSegment reporting

Assets held for sale and discontinued operationsInsurance contracts

Where full IFRS allow accounting policy choices, the IFRSfor SMEs allows only the easier option

Many of the principles for recognizing and measuringassets, liabilities, income and expenses have beensimplified

Substantially fewer disclosures are required (~10% of thenumber required by full IFRS)


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IFRS for SMEsComparison with full IFRS – in detail (1/2)

Presentation of financial statements

A single statement of income and retained earnings (instead of a statement of comprehensive incomeand a statement of changes in equity) if the only changes to equity during the periods arise from profitor loss, payment of dividends, corrections of prior period errors, and changes in accounting policy

2-year comparatives even in case of a change in accounting policies

Financial instruments

A SME can apply either the requirements of the IFRS for SMEs or the recognition and measurementprovisions of IAS 39 and the disclosure requirements of the IFRS for SMEsTwo categories of financial instruments (4 in IAS 39) : amortized cost model (basic financialinstruments) or fair value through profit or loss

More restrictive conditions to benefit from hedge accounting

Investments in associates and joint-ventures in consolidated statements

3 methods are permitted: equity method, at cost or at fair value through P&L, whereas full IFRS require: – the use of equity method for associates,

– either equity method or proportionate consolidation for jointly controlled entities

Foreign currency translation

On disposal of a foreign operation, any cumulative exchange differences previously recognized in othercomprehensive income are not reclassified to P&L



IFRS for SMEsComparison with full IFRS – in detail (2/2)

Fixed assets (investment property, PPE & intangible assets)

Investment property: at fair value only if it can be measured reliably without undue cost or effort ;otherwise, investment property is accounted for as PPE

The revaluation model is not permitted (neither for PPE nor for intangible assets)

All expenditure for both research and development activities is recognized as an expense(capitalization of development expenditure in full IFRS)

All intangible assets are considered to have finite useful lives and are therefore amortized

Business combinations and goodwill

“Full goodwill method” is not permitted

Goodwill is amortized over its useful life (which is presumed to be 10 years if it cannot be estimatedreliably)

Other topics

A government grant related to assets cannot be deducted from the carrying amount of the relatedassets

All borrowing costs are expensed as incurred

The “corridor” method is not permitted for actuarial gains and losses on defined benefit plans (P&L orother comprehensive income)



Agenda


2. IFRS for SMEs


3 IFRS 91 st step of a 3-part project to replace IAS 39

Main changes introduced by IFRS 9Effective date and transitional requirements


IFRS 9



IFRS 9 – Financial instruments1 st step of IAS 39’s replacement

IAS 39: a much debated standard

The IASC (the Board’s predecessor body) began to work on accounting forfinancial instruments in 1988

Initial version of IAS 39 issued in 1999 to fulfill the IASC’s commitmentstowards the International Organization of Securities Commissions(IOSCO)

– a tentative standard adopted in a great hurry – first revisions issued in 2000, before the effective date (1 January 2001)

Revised IAS 39 issued in 2003 and amended 9 times since thenWidely criticized during the financial crisis

To make progress as quickly as possible, the Board divided itsproject to replace IAS 39 into three main phases :

Phase 1: classification and measurement – IFRS 9 issued in November 2009 (financial assets)

– Exposure draft “Fair value option for financial liabilities” published in May 2010

Phase 2: impairment methodology – Exposure draft published in November 2009

Phase 3: hedge accounting – Exposure draft planned for Q3, 2010

As each phase is completed, chapters with the new requirements will be added toIFRS 9 and the relevant portions deleted from IAS 39.

We have agreed thataccounting standardsetters should take actionby the end of 2009 to (…)

reduce the complexity ofaccounting standards forfinancial instrumentsG-20 London Summit

April 2009 Declaration on strengthening thefinancial system



IFRS 9 – Financial instrumentsMain changes

IFRS 9 deals with classification and measurement of financial assets only

2 measurement categories instead of 4 in IAS 39

IAS 39 IFRS 9Financial assets at fair value through profit or loss Financial assets measured at amortized costLoans and receivables Financial assets measured at fair valueHeld-to-maturity investments

Available-for-sale financial assets

Classification depends on the entity’s business model for managing financial assets and on thecharacteristics of the financial asset in terms of cash flows

A financial asset is measured at amortized cost if both of the following conditions are met:the objective of the business model is to hold assets in order to collect contractual cash flows

the contractual terms give rise on specified dates to cash flows that are solely payments of principal andinterest on the principal outstanding

All other financial assets (which means, in particular, all equity instruments) are measured at fair valuewith changes recognized in P&L

but option for recognition in other comprehensive income available for equity investments (no recycling)





Agenda


2. IFRS for SMEs


3. IFRS 91 st step of a 3-part project to replace IAS 39

Main changes introduced by IFRS 9Effective date and transitional requirements

4 Which impacts on the starter kits for IFRS?IFRS for SMEs

IFRS 9



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Impacts on starter kitsIFRS 9 – Where do we stand

IFRS 9 is mandatory for annual periods

beginning on or after 1 January 2013some companies will opt for an earlier application

(subject to local regulations), others will go on referringto IAS 39

As far as possible, starter kits for IFRS should remainusable in both cases

Current versions of starter kits are compliant withboth IFRS 9 and IAS 39 provisions

The chart of accounts includes several items dedicatedto financial instruments:

– on the basis of their natures (e.g. loans and cash advances,

receivables, …) – plus generic accounts (e.g. financial assets at fair value

through profit or loss)

Accounting schemes embedded in the starter kit arecompliant (fair value or amortized cost)



Impacts on starter kitsIFRS 9 – Next Steps

Further analysis will be conducted in two

phases:

PHASE 1

After the entire project to replace IAS 39 isachieved (planned for Q2, 2011): to point out theeffects of the new requirements regardingimpairment and hedge accounting

PHASE 2

Once IFRS 9 becomes mandatory: to deleteconfiguration items that would no more be useful(e.g. accounts relating to categories that no moreexist such as available-for-sale investments)



Conclusion/What’s next?

Based on the last update of the IASB work plan (July 2010), the main new standards that shouldbe issued in the next 3 years are the following:

2010 2011

Improvements to IFRS*(2008-2010)

Consolidation(replacement of IAS 27)

Financial instruments(IFRS 9 completion)

Income taxes(replacement of IAS 12)

Leases(replacement of IAS 17)

Revenue recognition(replacement of IAS 18)

Liabilities(replacement of IAS 37)

Joint-ventures(replacement of IAS 31)

Financial statementpresentation

(replacement of IAS 1 andIAS 7)

Estimated publication date

* Issued (May 2010)



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IFRS - What's Nsew for 2010